What Should You Do With Your Old 401(k) After Switching Tech Jobs?

True Root Financial is a fee-only financial advisor and financial planner based in San Francisco, CA. We serve clients across the globe.

Switching tech jobs is exciting, but it often leaves you with an old 401(k) account. Many professionals in the San Francisco Bay Area face this situation, and making the right decision can save money, reduce stress, and improve your long-term retirement outcomes.

If you are a tech professional interested in learning how we can help you claim your financial independence by investing wisely, minimizing taxes, and maximizing your equity compensation, please book a no-obligation call here.

From career pivots to IPO windfalls, or simply seeking peace of mind, we help tech professionals bring clarity, confidence, and control to their financial future.

Here’s a detailed guide to your options, with the pros, cons, and key considerations for each.

Key Takeaways:

• Leave your old 401(k) if the plan is good and fees are reasonable
• Roll over to a new employer’s 401(k) to consolidate and simplify
• Roll over to an IRA for more investment choices and flexibility
• Avoid cashing out unless necessary due to taxes and penalties
• Always update beneficiaries and consider tax implications.

Option 1: Leave Your 401(k) With Your Old Employer

Keeping your 401(k) where it is can be convenient, but it’s important to understand the rules and potential risks.

Pros:

• Simplicity: You don’t need to do anything immediately.
• Tax-deferred growth: Your money continues to grow without taxes until you withdraw.
• Access to institutional funds: Large tech companies often offer low-cost funds not available elsewhere.
• Creditor protection: 401(k) funds are generally protected from creditors under federal law.

Cons and Things To Consider:

• Small-balance rules: Accounts under $5,000 may need to be moved, and accounts under $1,000 often result in a check being issued to you. You have 60 days to redeposit it to avoid taxes and penalties.
• Employer stock: Rolling company stock into a new plan or IRA may forfeit the favorable tax treatment called Net Unrealized Appreciation (NUA).
• Vesting: Employer matching contributions may not be fully yours if you weren’t fully vested when leaving the company.
• Fees: Some plans have administrative and fund fees that can eat into returns over time.
• This option works best if you like your old plan’s investment options, the fees are reasonable, and you don’t mind managing multiple accounts. Regularly track your account and review your investments to ensure they still fit your overall financial plan.

Option 2: Roll Over To Your New Employer’s 401(k)

Many tech companies allow rollovers into their new 401(k) plans, which can simplify account management and consolidate your savings.

Pros:

• Consolidation: Keeps your retirement savings in one place for easier tracking and rebalancing.
• Access to new investment options: Your new employer’s plan may offer better funds or lower fees.
• Creditor protection: ERISA rules protect your 401(k) from most creditors.
• Loan options: Some plans allow loans against your balance if needed.

Important Tips:

• Use a direct rollover: Funds move straight from your old 401(k) to your new one, avoiding taxes and penalties.
• Indirect rollovers: If the money comes to you as a check, 20% is withheld for taxes. You must redeposit the full amount (including the withheld portion) within 60 days to avoid taxes and penalties.

Confirm whether your new plan accepts rollovers and compare fund menus and fees. Sometimes the new plan isn’t better than the old one.

This option works best if your new employer offers a strong plan and you want to simplify account management while maintaining creditor protection.

Option 3: Roll Over To an IRA

An IRA gives you full control over your investments and often more flexibility than an employer plan.

Pros:

• Wide investment choices: Access to index funds, ETFs, bonds, and other assets not available in 401(k)s.
• Potentially lower fees: IRAs often have lower administrative costs than 401(k)s.
• Tax planning options: Choose between a Traditional IRA (tax-deferred) or Roth IRA (tax-free growth and withdrawals).
• No RMDs for Roth IRAs: Unlike Traditional IRAs, Roth IRAs don’t require withdrawals during your lifetime.

Types of IRA Rollovers:

• Traditional IRA: No taxes on the rollover; pay taxes later when you withdraw.
• Roth IRA conversion: Pay taxes now on the converted amount; future growth and withdrawals are tax-free.
• Roth 401(k) → Roth IRA: No taxes due; growth is tax-free if rules are met.

Other Important Considerations:

• Contribution limits do not apply to rollovers: You can move your entire 401(k) balance to an IRA without worrying about the $7,000 annual contribution limit (2025).
• Backdoor Roth strategy: Pre-tax money in a Traditional IRA may affect future Roth conversions.
• Creditor protection: IRA protections vary by state but rollovers from 401(k)s generally have bankruptcy protection.
• RMDs: Traditional IRAs require minimum withdrawals starting at 73. Roth IRAs have no RMDs for the original owner.

This option works best if you want more control over your investments, more choices, or flexibility for tax planning alongside equity compensation.

Option 4: Cash Out Your 401(k) (Usually a Last Resort)

Cashing out gives you immediate cash but usually comes at a high cost.

• Taxes apply to the full withdrawal amount.
• If under 59½, you pay a 10% early withdrawal penalty.
• You lose the power of compounding and long-term growth.

When Might It Make Sense?

Only in severe financial hardship or if your balance is extremely small. Even then, carefully consider the tax impact.

How To Decide?

When deciding what to do with an old 401(k), consider:

• Fees and investment quality: Compare the old plan, the new plan, and IRA options.
• Taxes: Roth conversions may be beneficial in lower-income years or during sabbaticals.
• Employer stock: Check for NUA opportunities before rolling over.
• Simplicity: Do you want fewer accounts to manage?
• Estate planning: Update beneficiaries when consolidating accounts.

Pro tip: Avoid letting small balances get cashed out or missing the 60-day rollover deadline, which can create unnecessary taxes and penalties.

Final Thoughts

Your old 401(k) is an important part of your retirement plan. Leaving it, rolling it over, or cashing it out can significantly impact your long-term savings. For Bay Area tech professionals, a direct rollover into a new 401(k) or IRA is usually the smartest choice.

Your Next Steps:

Making the right move now can help you avoid unnecessary taxes, reduce fees, and coordinate your retirement accounts with equity compensation and long-term goals. Select the retirement plan options that are most suitable for you. Book a call below :

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